• Blockchain in Banking A Measured Approach

will eventually evolve, it will be important for
early movers to embed this factor into their
long-term plans.
• Determine the nature of blockchain implementation:
open vs. permissioned. Most
banks are known to be working on closed/
permissioned blockchain platforms. Given
the technology’s embryonic state, it makes
sense for them to retain control, which means
assigning a central administrator to authorize
blockchain participation. However, the full benefits
of decentralization, such as lower transaction
costs, cannot be achieved without giving
up control. This permissioned blockchain
approach makes sense in the near term, but
as platforms emerge independently, industry
players will be pressured to realize the true
benefits of a blockchain platform.
• Calculate scalability. The Bitcoin community
continues to debate 20 the best way to increase
the transaction processing capacity of blockchain
from the current seven transactions per
second, as real-world scenarios would require
banks to process thousands of transactions per
second. Proposed solutions 21 include increasing
the block size limit from the current 1MB
per-block, direct payment channels between
two users, and centralized servers that handle
off-chain transactions.
Looking Forward: Partnerships and
Collaboration
Amid all the activity surrounding blockchain,
we believe a ”wait and watch” approach would
be suboptimal. Banks need to get started by
creating plans to enable blockchain technology
to co-exist with their legacy run-the-bank
systems. Blockchain must mature and become
robust enough to replace existing banking systems.
The key to unlocking blockchain's potential
in the long run is a common protocol that
enables interoperability. While visibility is hazy
on this front, banks planning to move their processes
to blockchain should start by assessing
how interoperability can advance their blockchain
objectives.
The time to start experimenting is now, and to
this end, banks are leaning toward an approach
that combines internal trials with involvement in
consortia that include fellow banks and technology
providers to explore blockchain use cases.
These experiments will lay the foundation – in
the form of protocols and standards — upon
which the future of blockchain will be built.
Leaders 22 such as R3, the Hyperledger Project,
Post Trade Distributed Ledger (PTDL) and Digital
Asset Holding are creating a safe space to carry
out pilot tests for blockchain prototypes.
Importantly, financial institutions and technology
providers can feed off each others' ideas
and experiments, while identifying areas of
focus and avoidance. This will allow banks to
identify and build key skill sets and use the
collective knowledge to create a blueprint that
will ease the seemingly inevitable transition to a
blockchain-driven future.
Footnotes
1
Bitcoin.org defines a blockchain as “a shared public ledger on which the entire Bitcoin network relies.
All confirmed transactions are included in the blockchain. This way, Bitcoin wallets can calculate their
spendable balance, and new transactions can be verified to be spending Bitcoins that are actually
owned by the spender. The integrity and the chronological order of the blockchain are enforced with
cryptography.”
2
Yessi Bello Perez, “Santander: Blockchain Tech Can Save Banks $20 Billion a Year,” CoinDesk, June 16,
2015, http://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year/.
3
Double-spending is the result of spending money more than once. Bitcoin protects against double
spending by verifying each transaction added to the blockchain to ensure the inputs for the transaction
had not previously already been spent. Other electronic systems prevent double-spending by
having a master authoritative source that follows business rules for authorizing each transaction.
Bitcoin uses a decentralized system, where a consensus among nodes following the same protocol is
substituted for a central authority. Source: https://en.bitcoin.it/wiki/Double-spending.
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